Goldman Sachs, MIT Analysts Split on AI’s Future: Bubble or Breakthrough?

- AI remains a contentious topic with differing opinions on whether it’s a tech bubble or the next major breakthrough.
- MIT and Goldman Sachs provide mixed perspectives; some experts doubt AI’s transformative ability while others anticipate a ‘killer app’.
- High development costs of AI necessitate its alignment with effective applications to justify investments and foster long-term returns.
Artificial Intelligence (AI) has been the rage of recent times, a hot talking point across many fields, covering traditional finance and crypto â but experts are at odds over whether this is just a bubble or the next frontier in tech.
A report by Goldman Sachs and the Massachusetts Institute of Technology (MIT) didnât reach a clear conclusion, with one Goldman Sachs economist and one MIT professor sceptical about AIâs transformative powers and three Goldman Sachs economists predicting a âkiller appâ to soon further boost the sector.
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Underlying Technologies of Generative AI Inherently Complex
MITâs Daron Acemoglu said while progress in generative AI will continue, the path to transformational change is more gradual and measured than it might seem.
Given the focus and architecture of generative AI technology today… truly transformative changes wonât happen quickly and fewâif anyâwill likely occur within the next 10 years.

Acemoglu added that humans will remain âin the driverâs seatâ even if current LLMs (large language models) achieve superintelligence â because they lack human capabilities.
It is very difficult to imagine that an LLM will have the same cognitive capabilities as humans to pose questions, develop solutions, then test those solutions and adopt them to new circumstances.

The extended timeline allows for a more thoughtful approach to development, aiming to maximise benefits while minimising potential risks and disruptions.
Goldman Sachs economist Jim Covello stated that while AI technology holds potential, its high development costs necessitate that it be effectively aligned with applications that can fully leverage its capabilities. Without this alignment, the justification for such investments becomes tenuous, particularly in scenarios where AI is not aptly suited to address the complex challenges it is tasked with.
AI technology is exceptionally expensive, and to justify those costs, the technology must be able to solve complex problems, which it isnât designed to do.

AI Has Ability To âGenerate Returns Beyond The Current âPicks And Shovelsâ Phaseâ
Fellow Goldman Sachs economists Joseph Briggs, Kash Rangan and Eric Sheridan hold a more positive view, believing in AIâs âability to ultimately generate returns beyond the current âpicks and shovelsâ phase, even if AIâs âkiller applicationâ has yet to emergeâ.
Rangan admitted that the current level of spending in absolute dollar terms was high but he also said it was worth long-term
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Spending is certainly high today in absolute dollar terms. But this capex cycle seems more promising than even previous capex cycles.

While they donât deliver any hint to what that killer app could be, they say thereâs still âroom for the AI theme to runâ. Ultimately, they believe AI will either âdeliver on its promiseâ or slowly die, âbecause bubbles take a long time to burstâ, as they put it.